Back to life, back to reality
With the existential crisis around Greece seemingly put to bed for now, markets are casting around for something to focus on. Yesterday with very little fanfare, Greece repaid around EUR6.8bn to various creditors including the IMF and the European Central Bank. With banks now allowing depositors to withdraw EUR420 a week in one visit, we are finally starting to see some normality return to the country. Transfers out of the country remain difficult but we would expect that to be lifted in the coming months.
Terms of the bailout should be agreed within the next fortnight with the first tranche of the EUR95bn bailout to be distributed in the weeks after that. Despite that and the calming of markets that we have seen in the past week, the spectre of Grexit still lingers. A survey of economists by Bloomberg sees 71% of those polled expecting some form of a Greek exit from the Eurozone economy in 2016.
Single currency to be sold
Euro has remained weak in these conditions and looks unloved moving forward. I maintain our belief that the single currency is set for a poor second half of this year on widening interest rate differentials between the Eurozone and the UK, US.
Nobody knows what damage the past month’s negotiations have caused for wider European growth prospects and I believe that the European Central Bank will end up maintaining its QE program past next September’s scheduled end. That will naturally lead to a lower euro, and markets are pricing that in as we speak. I like GBP/EUR higher throughout the year for these reasons and I maintain my 12 month target for the pair of 1.50 with EUR/USD testing parity.
Summer markets
Without Greece and the wider Eurozone to keep our interest piqued, there is very little taking place in markets at the moment. With no cricket, golf and the Tour de France on a rest day, traders will be bored out of their minds today.
Sterling remains well supported as lower and more stable debt dynamics continue to push the pound as a safer haven from market ructions in Europe or elsewhere in the future. This is something that will tighten monetary conditions without a rate hike this year.
Commodities continue to falls
The only market seeing some action at the moment is commodities with gold, copper and oil prices maintaining their recent downward trends. Commodity currencies such as CAD, AUD, NZD and ZAR are the first to see the effects but wider pressures on inflation will come to affect USD, GBP and others in the coming month if these falls continue. Inflation is the indicator that will be the closest watched in the coming quarters.